How to trade USD INR? – Trading Fuel: You are already aware of the export-import business, where there is a very large exchange of foreign currency.
But is this possible in stocks? Then this blog is for you.
What is the foreign exchange market?
- The Forex market is not like our regular stock market.
- It is an international market with different trading spots across the world that will allow you to trade not only in USD but also in EUR INR, JPY INR, and GBP INR currency pairs.
- Now, because you are an Indian trader, you can select any of the currency pairs that you wish to trade in.
- These currencies are benchmarked vis-à-vis the INR.
- With this, you can trade on exchanges such as the BSE, NSE, and MCX-SX.
- The most common currency pair among all of the above is the USD INR trading pair.
- Before starting the trade, you will have to learn that in the forex market, currency trading is done in pairs.
- Each pair has two currencies where one is the base currency, which is one unit, and the other is the quotation currency.
- For USD INR, USD is the base currency and INR is the quotation currency.
- Now, if you are a trader and you are planning to buy USD INR with the expectation that the value of the pair will go up.
- When you mention the currency pair price, it will be inclusive of the bid and ask price.
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What impacts the currency pair prices?
- Any significant economic event will impact the currency pair’s price.
- Because two currency pairs are involved, any major event on either front will cause movements in the prices.
Trading USD INR in the derivative market:
- You can trade in a call and put options on the pair.
- There is no delivery of the dollar and all the different exchanges will happen in INR.
- The option can only be exercised upon expiry or squared off in a month.
- Now, if the dollar gains strength against the rupee on or before the expiry, then the buyer of the call option will gain.
- A buyer of the put option will gain on a weakening dollar and lose on a strengthened dollar.
- A USD INR futures contract will allow you to buy or sell the dollar at a preset price for delivery on a future date.
- The futures will be settled in cash in INR.
- All forex trading has certain strategies or analyses that will help the traders decide whether to buy or sell the currency pair.
- These trading strategies are also based on world events, technical analysis, and historical trends.
Advantages of using the USD INR currency derivative in the market:
- Any resident Indian or even an NRI can participate in this currency pair.
- There is no underlying limit in this currency pair.
- The bid-ask spreads are as low as 0.0025 in the near-month pair, which will reduce the liquidity risk while trading.
- USD INR is the most liquid pair and it is also possible to get quotes from both directions with minimal risk.
- This pair is also based on the transparent market mechanism.
- With a transparent market mechanism, it is preferable for individual traders with limited access to information and insights.
- This pair can also be accessed through your broker or directly from your internet trading platform.
- This, in turn, adds convenience and will also reduce the hassles of trading.
Also Read: What Is Forex Trading?
Trading strategy for USD INR:
- The price action strategy is one of the most popular trading strategies, and it is based on the bulls and bears of the overall price action.
- After that comes trend trading, where the traders will depend on trend analysis.
- Here, the currency price movement will be identified first before deciding on an entry point.
- Apart from that, there is counter-trend trading, where the traders go against the trend.
- Also, there is range trading, where a particular currency range will be used for trading.
- With breakout trading, traders will enter the market at a point when it breaks out of an earlier range of trading.
- Position trading will be done using chart analysis and will require a good trader to have deep knowledge and expertise.
- Carry trading will involve selling currency that also has a low rate of interest and then buying a currency that has got a high rate of interest.
- If you are a new investor, then you might find this slightly overwhelming at the beginning.
- Forex trading will require some skills and knowledge of both markets and will also require an understanding of world events and their impact on the markets.
Also Check: INR Full Form: What is the Full Form of INR?
We hope the above blog has given you some insight into USD INR trading.
Trading Fuel is our website for blogs where we give you knowledge about finance, the stock market, intraday trading, and technical analysis. Stay tuned with us for more such blogs.
Frequently Asked Questions (FAQs)
Answer: Yes, currency trading is permitted in India alongside the USD.
Answer: The lot size is 1000 USD.
Answer: If trading in forex is a business for the traders, then their income will be taxed as business income.
Answer: The RBI allows forex trading only with authorized individuals and for authorized purposes.
Answer: Government and commercial banks will control the forex market.